Monday, 26 March 2012

Those thinking "phew! thank goodness stock markets have returned to normal and happy days are with us again" may want to read John Hussman's A False Sense of Security on the Hussman Funds website and James Montier's What Goes Up Must Come Down on AdvisorAnalyst.com. Both articles just published in March 2012 make a compelling argument that US stocks are richly valued since corporate earnings are artificially (government stimulus) and unusually high, distorting the P/E ratio and prospective returns.

Hussman's bottom line: "... we project total returns for the S&P 500 of just over 4% annually over the coming decade"

Montier's: forecast annual real total return for the S&P 500 over the next seven years of only 0.4% (see Exhibit 2 in his article)